Commentary: California workers’ compensation system plagued by high costs and fraud

The progressive era of California government a century ago spawned many innovative reforms, among them a “grand compromise” between the state’s workers and their employers.

Under “workers’ compensation,” enacted in 1914, workers would give up their right to sue employers for injuries and in return, employers would be obligated to pay for medical care and provide cash benefits while disabled employees recuperated.

Today, work comp, as it’s dubbed, is a huge program – well over $20 billion a year – whose operating rules are a source of perennial political jousting.

Five major stakeholder groups – employers, insurers, labor unions, medical care providers and lawyers who specialize in work comp cases – maneuver incessantly behind the scenes. About once a decade, several of the big interests agree among themselves on rules changes and get the Legislature and the governor to enact them.

Usually, what’s called “reform” involves financial gains for its sponsors and financial hits on those left out of the deal. It last happened in 2012 when employers and unions, with the tacit approval of work comp insurers, agreed to raise cash benefits and pay for them by tightening medical care and rehabilitation services. It angered medical providers and lawyers, of course, but followup studies indicate it’s done what it was supposed to do.

However, it still left California employers with – by far – the nation’s highest work comp burden. The 2016 annual survey of costs by the Oregon Department of Consumer and Business Services kept California in the No. 1 spot with an average cost of 3.24 percent of payroll for work comp insurance, 76 percent above the national average.

Obviously, working in California is not inherently more dangerous than in other states, and cash benefits to disabled California workers are not out of line, so the enormous cost differential must be rooted in the system itself, which explains why its rules are the subject of constant political infighting.

One factor in those costs is what officials say is an enormous amount of fraud, concentrated in Southern California.

Last year, the Center for Investigative Reporting reviewed work comp fraud cases that had been prosecuted and reported that they totaled more than $1 billion. But authorities believe that prosecutions merely are the tip of the iceberg.

Why Southern California? Its large numbers of immigrant workers are easily persuaded by recruitment agents, called “cappers,” to file claims that allow unscrupulous lawyers and medical providers to milk inflated payments for nonexistent injuries.

The Legislature occasionally addresses fraud. Last year, Sen. Tony Mendoza, D-Cerritos, carried legislation to prevent medical providers charged with work comp fraud from making claims for payment until their cases are settled, citing “fraudulent or unnecessary surgeries and compound medicines, as well as the selling of patient referrals to lawyers and doctors.”

The continuing litany of cases underscores that concern. Just last month, Orange County prosecutors filed fraud charges against 10 attorneys and six others in an alleged scheme involving more than 33,000 “patients” for which more than $300 million in insurance payments had been made. Two months earlier, Orange County had busted a similar operation, bringing charges against more than two dozen doctors, pharmacists and business owners.

The “grand compromise” is just as valid today as it was in 1914, but it could collapse if costs – and the fraud and other unseemly aspects of work comp that drive them – are not tamed. The next overhaul should be systemic, not just another backroom deal.